DAE Program Meeting
March 2, 2013
Claudia Goldin of Harvard University, Organizer
Marc Weidenmier, Claremont McKenna College and NBER; Joseph Davis, The Vanguard Group; and Ryan Shaffer, Claremont McKenna Collegem
America's First Great Moderation
Hoyt Bleakley, University of Chicago and NBER, and Joseph Ferrie, Northwestern University and NBER
Land Openings on the Georgia Frontier and the Coase Theorem in the Short- and Long-Run
The Coase Theorem, with low transaction costs, shows the independence of efficiency and initial allocations in a market; the recent "market design" literature stresses the importance of getting initial allocations right. Bleakley and Ferrie study the dynamics of land use during the two centuries following the opening of the frontier in Georgia (U.S.), which - in contrast to neighboring states - opened to settlers with a pre-surveyed grid, in waves, with differing parcel sizes. Using difference-in-difference and regression-discontinuity methods, they measure the effect of initial parcel sizes (as assigned by the surveyors' grid) on the evolution of farm sizes decades after the land was opened. They find that initial parcel size predicts farm size essentially one-for-one for 50 to 80 years after land opening. This effect of initial conditions attenuates gradually, and only disappears after 150 years. The researchers estimate that the initial misallocation depressed the area's land value by 20 percent in the late 19th century. This episode suggests the relevance of the Coase Theorem in the (very) long run, but that bad market design can induce significant costs in the medium term (over a century in this case).
Melissa Dell, Harvard University and NBER
Path Dependence in Development: Evidence from the Mexican Revolution
Dell exploits within-state variation in drought severity to identify how insurgency during the Mexican Revolution, a major early 20th century armed conflict, affected subsequent government policies and long-run economic development. Using a novel municipal-level dataset on revolutionary insurgency, she shows that municipalities experiencing severe drought just prior to the Revolution were substantially more likely to have insurgent activity than municipalities where drought was less severe. Many insurgents demanded land reform, and following the Revolution, Mexico redistributed over half of its surface area in the form of ejidos: farms comprised of individual and communal plots that were granted to a group of petitioners. Rights to ejido plots were non-transferable, renting plots was prohibited, and many decisions about the use of ejido lands had to be countersigned by politicians. Instrumental variables estimates show that municipalities with revolutionary insurgency had 22 percentage points more of their surface area redistributed as ejidos. Today, insurgent municipalities are 20 percentage points more agricultural and 6 percentage points less industrial. Incomes in insurgent municipalities are lower and alternations between political parties for the mayorship have been substantially less common. Overall, the results support a view of history in which relatively modest events can have highly nonlinear and persistent influences, depending on the broader societal circumstances.
Leticia Arroyo Abad, University of California at Davis, and Noel Maurer, Harvard University and NBER
Fiscal Receiverships and Charter Cities, 1904-31
Paul Romer's "Charter City" concept proposes that governance can be improved in underdeveloped nations by contracting out state functions to foreign officials. Arroyo Abad and Maurer test a version of this proposal using the experience of the eight U.S.-led fiscal receiverships between 1904 and 1934. Under a fiscal receivership, U.S. officials took over the management of a foreign country's fiscal institutions, including personnel and administrative regulations but not tax or tariff rates. The country retained titular sovereignty. Using data on fiscal revenues and the volume and terms of trade, the reserarchers find that revenue fell under receiverships. In order to eliminate the possibility of reverse causality, they use a series of instruments for receivership: the findings hold.
Matthew Jaremski, Colgate University and NBER, and Peter Rousseau, Vanderbilt University
The Rise of Commercial Bank Deposits in the United States
Bank deposits by individuals grew steadily from about 4 percent of GDP at the time of the National Banking Acts in 1863 and 1864 to nearly 25 percent by the founding of the Federal Reserve. Using a comprehensive collection of bank-level data, Jaremski and Rousseau show that most of these gains occurred immediately after the Acts, Specie Resumption in 1879, and the Election of 1896. The deepening was not just the result of new banks or the resurgence of state banks after 1880, as deposits increased across all banks regardless of age or type. Checking accounts, clearinghouses, rising incomes, and urbanization contributed to the switch to deposits, but increases in confidence in banks among the public also seem to be central, with more highly capitalized banks from earlier entry cohorts seeing the largest gains.
Charles Calomiris, Columbia University and NBER, and Jonathan Pritchett, Tulane University
Betting on Secession: Quantifying Political Events Surrounding Slavery and the Civil War
Using a new database of slave sales from New Orleans during the late 1850s and early 1860s, Calomiris and Pritchett examine the connections between political news related to slavery and the price of slaves during the five-year period leading up to the Civil War. They show that slave prices fell prior to the war, and continued to fall once the war began. The overall decline in slave prices was large (more than a third from their 1860 peak) and occurred prior to any battle losses by the South. Rather than indicating a likely emancipation of slaves without compensation to their owners, the decrease in slave prices seems to have reflected rising concerns by slaveholders regarding the costs of Lincoln's election and the coming Civil War on the economic future of the South and its slaveholders.